The Effects of Globalization on Wage Inequality: New Insights from a Dynamic Trade Model with Heterogeneous Firms
AbstractFears of increasing inequality play a dominant role in current debates on how globalization is affecting our economies. After a brief review of recent trends in wage inequality, this policy paper presents new insights on the dynamic effect of trade liberalization on wage inequality. In the context of a dynamic trade model with costly labour mobility (Lechthaler and Mileva, 2013), we show that the effect of trade liberalization on wage inequality depends on i) the time horizon considered, ii) the degree of worker mobility, and iii) the degree of trade liberalization (partial/full). In the short-run, observed increases in wage inequality are driven by an increase in inter-sectoral wage inequality, while in the long run, wage inequality is driven by an increase in the skill premium.
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Bibliographic InfoPaper provided by WWWforEurope in its series WWWforEurope Working Papers series with number 49.
Date of creation: Dec 2013
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Publication status: published
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Postal: WWWforEurope Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F20 - International Economics - - International Factor Movements and International Business - - - General
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
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